The Coming Collapse of Credit Suisse | Great Recession 2.0

September 15 2008 is the day Lehman

Brothers went bankrupt it was not deemed

too big to fail and instead it failed

and contributed to the implosion of

financial markets that deepened the

recession of 2008 and ended up leading

to the great financial crisis as the

mortgage Market melted down today

comparisons are being made that a

company called Credit Suisse or Credit

Suisse or Swiss bank so depending on how

you want to call them

is potentially at a Lehman Brothers

moment that this Bank potentially with

many more assets under management than

Lehman Brothers at the time in 2008

could potentially go bankrupt and if it

goes bankrupt it could be even more

impactful than the bankruptcy of Lehman

Brothers so if you remember people

leaving their offices with boxes because

their company went bankrupt in Manhattan

that might happen again

so let's go through some of the madness

that people are expecting regarding

Credit Suisse and this potential Lehman

Brothers moment this is a bank by the

way that for years if not potentially

decades has been involved in scandals

and potentially misleading their clients

their wealth management clients their

investors about the safety of particular

products they were investing in

especially Bond portfolios which have

absolutely been obliterated in recent

months that's because most spawn

portfolios are down 40 and some Bond

portfolios are down 50 to 80 percent and

Credit Suisse is really no exception

here the problem is

we have a bunch of compounding issues at

Credit Suisse that could actually lead

to not only the substantial reduction

and valuation of the company and share

price but the potential ultimate

bankruptcy a lot of it's is being

compared to the scandals that Deutsche

Bank went through in 2016 especially

since just last year Credit Suisse took

one of the largest losses from the

implosion of arcago's Capital Management

when Bill Huang basically 20x leveraged

his hedge funds portfolio and ended up

losing all of it potentially leveraging

up to 160 billion dollars and Credit

Suisse taking some of the largest losses

from that disaster so what do we know

about Credit Suisse and how is Credit

Suisse different from Lehman Brothers

well that is what we're going to start

with then we'll move into what's

potentially happening within the

internal structure of Credit Suisse and

what could come out of that and why is

all of this becoming a problem now in

the first place we'll go through

everything

first let's compare Credit Suisse to

Lehman Brothers one thing that's

important to remember is that Lehman red

this is probably the most important

aspect is Lehman Brothers had over 600

billion dollars worth of credit default

swaps and even though that sounds really

fancy the way I want you to think about

that is if you have one dollar of real

estate think about a credit default swap

as representing about ten dollars of

real estate so if your one dollar

doubles you double ten dollars instead

of having an extra one dollar you would

actually have an extra

ten dollars that's the power of Leverage

via a credit default swap which is a

derivative think about it kind of like

trading weekly call options okay for

those of you option Traders or think

about it like going to the roulette

table and picking a number

all right so that's a credit default

stop it works great when you're winning

and you're hitting the right number it

works really poorly when things are

collapsing and that's what happened with

the great financial crisis is the real

estate market the underlying

fundamentals of the real estate market

collapsed that's because people had been

buying homes with no income no job no

assets known as in ninja loans people

were coaxed into short-term variable

rate loans that started with interest

rates at negative percent rates or

potentially zero percent taser rates

that adjusted within six months to

Market rates which were like five or six

percent uh and and many people couldn't

afford their payments they couldn't

refinance their homes as they were

promised so they let homes go into

foreclosure which led to the collapse in

valuations of real estate products and

real estate portfolios and when Real

Estate came down 40 percent all of a

sudden that one dollar which was

actually ten dollars became more like uh

oh a six dollar loss because of that

leverage aspect potentially an infinite

loss of uh or a complete loss I should

say rather than an infinite loss a

complete loss of those credit default

swap contracts is the entire real estate

market melted down and what you ended up

with is companies like Lehman Brothers

going completely bankrupt and massive

losses at other companies like Goldman

Sachs or AIG as well some of which of

course were bailed out unlike Lehman

Brothers but how is today different from

this Lehman Brothers moment well on one

hand it's very different in that the

crisis we're seeing right now is not one

based on real estate valuations

plummeting even though the real estate

market is starting to turn down we're

not seeing the insane leverage in the

Banking and Financial system anymore

when it comes to credit default swaps

related to real estate however we are

seeing leverage related to bonds and

because the bond market has been getting

decimated we've seen substantial losses

at Banks because of the bond market

certainly nowhere near as Extreme as

what we saw during the great financial

crisis because of real estate credit

default swaps becoming worthless but

still substantial losses and substantial

losses are one of the reasons why the

CEO of Credit Suisse who was actually

just appointed back in July to sort of

manage a takeover for credits resource

sort of restructuring we should say this

CEO recently came out and said that the

bank is at a critical moment and the

financial times has put together

multiple pieces about how the

culmination of all the failures of

Credit Suisse to manage risk over the

past few years so this new CEO suggests

that he is going to announce a

turnaround strategy for the bank at the

end of October that turnaround strategy

is widely expected to lead to thousands

of job cuts and expense cuts and so what

I actually decided to do is go through

the investor relations report for Credit

Suisse to try to understand is this just

a poorly run Bank are there problems in

the way the company is operating and is

that potentially why we're seeing really

scary charts that are circulating on

Reddit and circulating on Twitter saying

and suggesting that uh oh this company's

going bankrupt because look the cost of

ensuring yourself or your bond portfolio

against the default of Credit Suisse has

skyrocketed you can see the line on the

right is almost similar to the peak as

what we saw in 2008 so in other words

the cost to insure yourself or protect

yourself on the right is about the same

as the cost to protect yourself in 2008

which is sending the signal that oh no

it's getting so inexpensive to ensure

ourselves against loss because of Credit

Suisse there must be some serious

fundamental issues at the company and

here's just sort of another image of

that that's circulating around on Reddit

and so a lot of folks are saying that's

it that's it this is Lehman Brothers all

over again see the cost to insure

yourself is so high like in 2008 that's

it the financial crisis is here and my

goal is to try to understand is there

something in the investor relations

report that actually shows me okay no

this is just a bank that sucks versus a

bank that's about to be just sort of the

tip of the iceberg for a financial

crisis and a financial meltdown and so

that's exactly what we're going to do

let's take a look at their financials so

the first thing that I noticed that's

most important and I went through this

with course members in detail this

morning we went through all of these

Pages uh and and did some digging so

this is sort of a quicker or synopsis a

version of this and one of the things

that we noticed is that in their wealth

management division they had net

revenues that had declined 34 we have a

34 decline in year-over-year revenues

which is fine because a lot of companies

have actually had these sort of 34

percent declines that's because the

markets have gone down less people are

trading so the amount of Revenue that

you can make through managing other

people's money or investment banking

services is obviously declining this is

the management Division division which

has their revenue down 34 but what blows

my mind and sends me a signal that maybe

the problems at this Bank are really

just one of poor management is the

following take a look at this section

right here it's called the general and

administrative expense section it

usually has to do with things like

litigation and payroll expenses salaries

and the company actually in the report

cites exactly these issues some

litigation expenses but also

substantially higher salaries in order

to retain talent and so what's

remarkable is while their net revenues

declined 34 percent under wealth

management they actually bloated their

General and administration expenses by

43 and their other compensation

increased by nine percent so you would

think think that when all of a sudden

your revenues are going down 34 that you

would see a decline in compensation for

your Bankers uh or or the salaries that

people earning or the just the head

count that you have at the company but

no the company actually became so

bloated that their entire wealth

management division this is their wealth

management page their entire wealth

management division actually lost

roughly 100 billion dollars or 96

billion francs it's almost a one to one

so if you hear me say dollars or swish

Swiss Francs they're roughly the same

they're about one to one but that's not

even that bad what's actually worse is

that if you jump over here to the

Investment Bank side you could see the

same thing happening here a 40 decline

in revenues for the Investment Bank

matched by compensation expenses that

increased uh or sorry General and

administrative expenses that increased

31 and compensation expenses that

increase 10 percent why does that make

sense to where all of a sudden a bank

think that used to be profitable under

the investment banking side well at

least in the first quarter they were

profitable in the second quarter lost

1.1 billion dollars in just one quarter

while they're paying these massive

freaking salaries and their banking or

their Investment Banking revenue is down

40 percent now I think this is where

it's just worth taking a quick little

pause and saying look if there were some

massive issues in terms of like credit

default swaps that all of a sudden are

becoming worthless uh which I mean don't

get me wrong like bonds are kind of

losing a lot of value right then then we

would expect to see massive write Downs

on the balance sheet of this company for

assets losing a lot of value but what

actually seems to be happening here is

their clients their customers are losing

a lot of money and therefore their

revenues are declining in wealth

management and Investment Banking while

at the same time they're spending more

money on people so so far what I'm

seeing in this report is is actually not

something that makes me think that oh

this is a company that's losing a lot of

money to bad Investments it's actually a

company that just sucks at being a

business remember one of the biggest

things that I say because obviously you

know that I'm starting this company

house hack this startup one of the

things that I say leads companies and

businesses to bankruptcy is too much

staff too much payroll and how are you

losing 30 to 40 percent in Revenue but

growing your your staff and bloating

your staff that that seems illogical

right and you could see here sort of one

of their disclaimer primarily due to

head count growth Investments is one of

the reasons they're seeing this

substantial uh sort of move in in

expenses but on top of that they're

seeing their clients or in my opinion

we're seeing their clients uh getting

pissed off and so you actually see about

two billion dollars in outflows of

customer deposits so you're seeing

people leave the bank now I wouldn't go

as far as calling this like a run on the

bank I would just say that people are

pissed off probably because Credit

Suisse is losing them money and at the

same time they're having to refinance

their debt at a higher in interest rate

and you can see that here because

they're paying off old debt and

refinancing new which rates are

obviously higher so let's just briefly

try to reconcile some of what's going on

so you have losses at the company

because of bad risk management right so

they're not only did you lose money on

archangos but you lost money through

other scandals and litigation so you

have expensive scandals and litigation

so we can you know maybe what we'll do

is we'll even write these down just so

we can look at this nice and cleanly

together here so we have scandals and

risk failures right that would be like

archangos that's that's the first thing

and that's very expensive then they have

more employees right that's more expense

uh and at the same time revenue is going

down this isn't assigned to me of like a

systemic crisis so far on the financial

system it's a sign that this Bank sucks

right uh now there are losses uh are

leading to

withdrawals right that also makes sense

like if you're if you're using them for

Investment Management Services and

banking services but then they lose you

a lot of money because they parked you

into bonds that they thought were safe

like uh UK guilts and then all of a

sudden they lose 50 in value well

you might be a little pissed so you're

seeing scandals and risk failure more

employees more expensive Revenue going

down losses leading to withdrawals at

the same time as all of this you're

having to refinance uh debt that you

have whoopsies uh at a higher interest

rate and the issue again with

refinancing at a higher interest rate is

you end up having higher interest

expenses so I appear to have lost my

page oh here we go so now you have

higher interest expenses which again

leads to more money that's going out of

this company's uh pocket right so more

interest expense so really so far what

we have is a company again that is

failing to manage its business

appropriately and you could actually see

that a little bit by looking at their

cash flow statement and how much actual

cash they have so here's how much cash

that they have if you do the math here

and you add up their short-term assets

they've got about 353 million dollars in

short-term assets you subtract

short-term liabilities of about 90

million dollars you get to only about

263 million dollars of cash that this

company has

263 million dollars of cash when you

jump on over to the cash flow statement

you kind of start seeing uh oh we are

losing 1.8 billion dollars a quarter

right now because we suck at operating

our company and that includes interest

expense right so we're spending 1.8

billion dollars in expenses but we only

have just under 300 million dollars

available and on top of that when we

consider our operating investing and

financing activities we actually just

eradicated about 5.3 billion dollars of

cash available we are out of money at

this bank so not only are we sucking but

we're straight up out of cash at this

bank now I don't profess to know

absolutely everything about this bank

but just by actually looking at the

financials rather than just relying on

people ranting on Twitter about how

things look like 2008 and clearly this

is a sign that the end of the world is

coming and this collapse spells the

beginning of a great financial crisis

2.0 rather than just believe that

headline nonsense which you know there's

headline and there's detail I'm a detail

person okay if you're a headline person

sorry you're probably going to have some

crazy emotions but you know I think by

now we should learn that headlines are

Sensational details are what matters

when we actually look at this company we

go wait a minute it's no surprise that

the company is potentially going to lay

off 5 000 workers I did some quick math

and I think that in order for them to

just go back to break even they actually

need to cut more jobs they need to cut

maybe between 7 500 to 10 000 jobs that

would be about uh 10 well maybe about 15

to 20 percent of their Workforce of

about fifty thousand fifty one thousand

individuals world why so this fear that

this is the Titanic you know and just

the beginning of a fleet of crashes I

think is a little overblown I could see

though why people are freaking out

because they're looking at a bank that

just straight up sucks and it it sends

these signals that maybe there's a

larger underlying issue in our economy

but to me again this is this is all uh

being created or being exposed like the

bad management of this bank is being

exposed because the Federal Reserve is

hiking rates extremely aggressively

which is making their interest more

expensive and is devaluing the bonds of

their customers their customers are

leaving and losing money the company has

too many employees and it all points

back to the fed the Glory Days Are Over

as the FED basically is telling us the

fed's saying look The Glory Days Are

Over stop spending money tighten your

belt and if you're Bad Company the

Market's just going to eat you up the

market is going to make you go bankrupt

unfortunately this company has seen

their market capitalization fall uh

somewhere around 70 percent they're

starting talk has just plummeted over

the last year and when you look at their

market cap they've got about a 10

billion dollar market cap they're trying

to raise eight billion dollars the only

way they can really do that is selling

off assets so now they're thinking about

selling off like their trading unit and

their Brazil unit which are massive

money losing units anyway and then if

they do end up selling those off they're

still going to have to potentially raise

four billion dollars from markets but if

you remember uh you know when when you

like right now today we we are in a

relative what I would say liquidity

crunch or crisis globally where there's

not a lot of cash to support uh these

sort of Bank financing or company

financing activities where the company

goes hey we're just going to Issue four

billion dollars of uh New Stock and so

what ends up happening is much like ape

ape you end up saying hey we're gonna

dilute shareholders a lot well then what

happened so uh to the stock well the

stock ends up losing 60 percent of its

value you in six months or actually less

than six months in like two months just

like ape did which is what I warned the

reason I warned that stock the talk

stock ticker symbol ape would likely

Fall substantially is because when

companies tried to dilute their

shareholders in a liquidity crisis where

people are like we don't have enough

cash right we're getting gobbled up in

the market everybody's wealth is going

down we don't have money to keep

supporting the liquidity needs of this

company then what happens is you end up

getting selling pressure that is

actually more impactful than it should

be because there just aren't enough

buyers available at discounted prices

and that's unfortunately going to lead

CS stock which is Credit Suisse to to

likely uh continue its plummet now

ironically even though it's down uh 59

in the past year and 75 in the past five

years it's actually green today it's

green today at 1.78 potentially because

people think okay or are realizing hey

like this is not the sign of and then

the market is rising slightly too with

the exception of obviously of Tesla

um you know maybe maybe this is not the

sign of a systemic Global crisis but

this is actually just a sign of a poorly

managed bank and and if they can cut

their Workforce the way the CEO is

suggesting maybe they'll be able to get

through this so these are my thoughts on

the Credit Suisse coming disaster

hopefully this Insight helps you and if

you found it useful consider sharing in

my opinion what I believe to be the

truth uh and a subscribe for more thanks

so much bye